This move is expected to have a major impact on their business in the short run, given that a significant number (around 60-70%) of purchases still happen through cash-on-delivery mode.Vikas SN | ETtech | Updated: November 09, 2016, 19:52 IST

E-commerce players Amazon and Paytm have suspended cash on delivery payment option for all its orders while rivals Flipkart, Snapdeal and ShopClues have put restrictions on the order limit for cash-on-delivery orders, a day after Narendra Modi's landmark move to kill Rs 500 and Rs 1000 notes.

A Flipkart spokersperson said it will restrict cash-on-delivery payment mode for orders below Rs 1,000, to "enable customers to conserve smaller denomination notes for daily essential use". Earlier in the day, Flipkart had said on its website that it will stop providing cash on delivery option for orders above Rs 2,000.

"We are no longer accepting Cash-on-Delivery (CoD) payments in ₹500 and ₹1000 currency notes. In order to enable customers to conserve smaller denomination notes for daily essential use, we are restricting CoD on orders below Rs. 1000." a Flipkart spokesperson told ETtech "We urge our customers to opt for alternative payment modes such as card on delivery, Internet banking, credit and debit cards, gift cards, and our easy and convenient PhonePe wallet. We are also working on a slew of measures to help customers easily transition from cash to digital payments"

At the time of writing this article, we noticed that Alibaba and SoftBank-backed Snapdeal has restricted cash on delivery option for orders below Rs 2,000, while ShopClues is offering the payment mode for orders only below Rs 1,000.

This move, while temporary, is expected to have a major impact on their business in the short run, given that a significant number (around 60-70%) of purchases still happen through cash-on-delivery mode. It will likely have a more pronounced impact in rural areas where cash is still the dominant payment option.

Implications (Our view)

In the meantime, here are couple of things to ponder over this development:

- Payment for existing orders? While these e-commerce players has placed restrictions for future orders, we wonder how they are going to address the orders already placed via CoD and expected to be delivered over the next couple of days, especially in rural areas.

Will they make a provision for customers to pay via cash or provide an alternate means of payment to those who don't have enough cash or access to any other payment mode. Else, customers might be forced to return these orders, which could eventually result in higher costs for these companies.

- Major impact in short term, beneficial in long term: With no cash on delivery option, E-tailers might also face slower business for the next few weeks, until more customers are equipped to pay via the newly issued currency notes or use alternative payment modes.

During this period, the return rate for e-commerce orders will likely shoot up, resulting in higher losses for e-commerce companies.

That being said, the move is largely expected to be beneficial for e-commerce companies in the longer run, since it will reduce the number of cash on delivery orders, thereby enabling them to bring down the cost for each order and improve their unit economics.